$TWTR – What You Don’t Know May Not Profit You

Takeaway: Caution is advised for Twitter bulls.

Editor's note: This is a brief excerpt from a recently released Hedgeye report.

The Known:

Hedgeye Internet analyst Hesham Shaaban says “2Q14 was a monster quarter” and notes the company raised guidance by $100M, “a considerable raise relative to prior implied 2H14 guidance of $700M.” A massive driver for the quarter was ad content around the World Cup.

 

$TWTR – What You Don’t Know May Not Profit You - 56

The Unknown:

How much of TWTR’s 2Q14 strength was driven by the World Cup – a month-long global event without a comparable event in the prior-year period, or its public history. Also unclear is how much TWTR is relying on its recent acquisitions – ones already closed, plus three more announced for 3Q14 – to pump its increased guidance. Shaaban says the Street is not likely to pay up for an increase in revenues that comes inorganically – from a mix of acquisitions and one-off events.

 

The Unknown Unknown:

For the first time, TWTR growth in ad engagements lagged user activity, meaning users are fading Twitter ads at an increasing rate. Since TWTR gets paid when users actually engage with ads, this implies the company will have to push more ad volume, as ad engagement declines. In fact, Shaaban says TWTR’s growth has been driven more by surging ad load, and less by high volumes of user engagement. If TWTR can't get its users to engage with its ads at historical rates, it will need to introduce a disproportionately larger number of ads to continue to deliver results. This risks pushing the less loyal users away, especially since TWTR is largely dependent on mobile (smaller screen) users.

 

$TWTR – What You Don’t Know May Not Profit You - t2

What We Expect:

Shaaban expects a marked 2H14 deceleration in organic advertising revenue growth, though we could still see 2H14 revenues rise from its latest acquisitions. Shaaban doesn’t believe this is what the Street is expecting, or is willing to pay for. If TWTR's 3Q14 results reflect these expectations, Shaaban says it would cast serious doubt on the story.

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more